New Venture Capital Fund Gives Entrepreneurs a Cut of the Profit

By WILLIAM ALDEN

July 10, 2014

Venture capitalists tend to promise lots of advantages when they court technology entrepreneurs, saying they can offer expert advice and a network of contacts.

But Kent Goldman, a former partner at First Round Capital who left this year to start a new venture capital fund, promises the start-up founders something extra: investment profits.

Mr. Goldman on Thursday announced the establishment of his new fund, Upside Partnership, and said it would come with an unusual twist. The founders of the companies that Upside invests in will receive a cut of the profits earned by the fund, Mr. Goldman said.

“It’s a new type of partnership and something that I don’t think ever has been tried in venture capital before,” Mr. Goldman said in an interview.

“I want to build a really strong founder community,” he added. “I thought one way to encourage that would be to make it so every founder felt as though they were an investor in other businesses in the portfolio.”

Mr. Goldman, 39, said his new firm had raised a little more than $30 million to make seed-stage investments in young companies. An early investor, he said, was Josh Kopelman, a partner at First Round. But he added that the vast majority of the capital came from institutions, including endowments, other funds and family offices.

Mr. Goldman, the sole partner of Upside, would not disclose the overall fee arrangement of the fund, though he described it as “fairly traditional” for venture capital. He said he plans to allocate a “double-digit percentage” of his personal cut of the fund’s profit to the entrepreneurs in his portfolio.

While the plan may be novel, Mr. Goldman has years of experience with technology companies. He joined First Round Capital in 2008, leading investments in companies including Hotel Tonight, a last-minute hotel booking app. He previously worked at Yahoo in mergers and acquisitions.

The point of the compensation structure, Mr. Goldman said, is to encourage collaboration among the entrepreneurs in which he invests.

“It stuck in my mind this idea that when you see an investor announce an investment in a company, it’ll say, ‘We look forward to partnering with founder X as they build their business,’” Mr. Goldman said. “One day I thought, what if they really were a partner?”